All mergers are not created equal, at least according to the Federal Trade Commission. The agency recently released a report on its merger investigations from fiscal years 1996 through 2011.
The FTC report examined 464 merger investigations in which a Request for Additional Information (“second request”) was issued. Of those, 264 involved horizontal mergers—those involving direct competitors—from 1,372 markets. In total, 46 cases were closed "due to the insignificance of one of the merging parties”; they are referred to as “quick looks” in the report. Conversely, the parties to the merger abandoned 86 deals during the course of the FTC investigation.
With regard to the FTC’s enforcement activity, the report reveals some interesting trends. For instance, cases in which “hot documents” were identified tended to result in enforcement by the FTC. According to the FTC, “A document is ‘hot’ if it predicts that the merger will produce an adverse price or non-price effect on competition. The most obvious situation involves acquiring party documents that predict a price effect stemming from the merger.” Of the 28 horizontal merger investigations in which “hot documents” were uncovered, 25 resulted in FTC enforcement.
The report also revealed that the receipt of customer complaints is also indicative of the merger’s success before the FTC. The FTC defined a “strong customer complaint” as where “customers expressed a credible concern that a significant anticompetitive effect would result if the transaction were allowed to proceed.” Of the 114 mergers involving these complaints, the FTC took action in 111 cases (or 97 percent). In 122 deals where strong customer complaints were not lodged, the FTC took action less than half the time.
With regard to industries, investigations into mergers involving pharmaceuticals companies had the worst outcomes. Of 122 horizontal merger investigations, only 3 were closed without FTC enforcement action. By comparison, hospital markets saw 8 cases enforced and 12 closed, and branded consumer products saw 21 cases enforced and 19 closed.
While it is not always possible to predict how the FTC will rule in every horizontal merger investigation, the latest report highlights that certain industries and market conditions will trigger closer scrutiny.
If you have any questions about the FTC report or would like to discuss other legal issues related to mergers and acquisitions, please contact me, Robert Marisco, or the Scarinci Hollenbeck attorney with whom you work.